Last Year of Residency or Fellowship Checklist
Written By: Andrew Newhouse
If you are reading this post, you have either just finished your last year of residency or fellowship (Congratulations!) or you are entering your final year and can see the light at the end of the tunnel! Either way, now is the time to get your finances in order so you can hit the ground running as you transition into a new attending physician. Below is a checklist of things to address in the last year of residency or fellowship to help you on your journey. Let’s get started!
Get an Attending Job
The first order of business in your last year of residency or fellowship is to graduate and get a job as an attending physician somewhere.
You have likely already determined if you plan to pursue a career in academic or clinical medicine. If non-academic, do you want to be employed by a hospital or join a private group? That likely depends somewhat on your specialty and where you want to work.
Polish up your CV, start interviewing, and get a contract signed. Before signing the contract, it’s wise to have someone who specializes in contract review services for physicians take a look at the contract for anything to be aware of or possibly negotiate on.
Develop a Student Loan Repayment Plan
After lining up an attending job, the next order of business is to figure out a game plan with your student loans. The big question with student loans is whether you are trying to pursue the Public Service Loan Forgiveness (PSLF) program or plan to pay off your student loans the old-fashioned way. We would be happy to connect for an introductory call to review which student loan repayment option may be best for your student loans.
If PSLF isn’t a viable option for you, there are other ways to get medical school loan forgiveness. Below are a few alternatives to the PSLF program:
- If this career path is interesting to you, you could get your medical student loans forgiven in exchange for six years of service.
Working in a Rural Area
- Rural areas have been known to have very generous compensation packages in order to attract physicians to “less desirable” locations.
- This will change employer to employer but often times rural areas pay above average salaries and offer student loan reimbursement.
- This could be an attractive offer to jump start your finances at the beginning of your career.
- If you want to focus most of your time and energy to research, there are grants available that can go towards paying off student loans.
- The National Institute of Health (NIH) has the most well-known loan repayment incentive, in which they will pay up to $50,000 per year towards student loansfor research relevant to their projects.
- It is highly competitive to qualify for these loan repayment grants, but this can be a good option for physicians in academia.
If none of these routes are the option that you want to pursue, once you become an attending, it could make sense to refinance your medical school loans to a lower interest rate so you can pay them off faster.
Regardless of which route you are pursuing, brace yourself for a higher loan repayment amount. If you are on one of the income-driven repayment plans for federal loans (IBR, PAYE, REPAYE), it may take a year of full attending income before the loan payment amount goes up. Be prepared for that increase, though, as it could be several thousand dollars per month.
Related: How to Pay off Student Loans
Get Own-Occupation Disability Insurance
If you don’t already have it, get an own-occupation disability insurance policy.
Your income is the linchpin to your entire financial world working properly. Without income, there is no paying down debt, buying a house, saving for retirement, eating, taking vacations, or anything else you want in life. So as long as you depend on income, it’s prudent to protect it as best as possible.
Underwriting is more lenient while you’re in residency/fellowship, and policy discounts are more prevalent. This makes it easier to secure and less expensive than if you wait until you are in practice.
If you just entered practice, we still recommend securing a policy sooner rather than later. Disability insurance is based on your age and your health. The younger and healthier that you are, the cheaper the coverage will be.
If you have health issues and can’t medically qualify for disability insurance, there are some residency programs where you can purchase a guaranteed standard issue disability insurance policy without medical underwriting.
Get Term Life Insurance
While we’re on the insurance topic, you may as well look at life insurance too. If you have a spouse and children, life insurance is mandatory. Okay, it isn’t actual mandatory, but we STRONGLY encourage you to look into coverage.
If you are currently single but one day plan to have a spouse and children, use your age and health to your advantage and lock in an inexpensive term policy now.
Physician life insurance is no different than life insurance for the rest of the population. However, the ability to get it is contingent on health and age affects cost, so get it as a future planning tool even if you don’t need it today.
Related: Why is Life Insurance Important?
Put a Hold on House Hunting
As tempting as it can be to start looking at houses once you have a contract lined up, please wait. Rather than looking at the new salary figure and asking yourself, “How much house can I afford?” hold off on looking at the new home purchase until you actually start working and are working in the new job for at least a few months.
I have seen scenarios where physicians think they have a job lined up, and then a month before their start date, the employer pulls the rug out from under them.
Countless times, I have doctors start working at a new practice or hospital, quickly learning it is not what they expected, and they start looking for new opportunities.
Home buying can make sense if you end up being in the area for a handful of years. But, selling a house shortly after purchasing it can be costly.
Ideally, you plan to stay in that home for at least a handful of years before upgrading or moving on.
Retirement Plans for Doctors
On the retirement side of things, there is a lot to address. Often times, there will be an employer plan provided to you, if you are working for a larger employer or hospital system. If you are working for a smaller private practice, there may not be a plan provided to you. Either way, there are plans that you can establish and participate in to save for retirement.
Related: Retirement Plans for Doctors
Learn the Backdoor Roth IRA Rules
Your attending income level will likely put you above the income eligibility for direct contributions to a Roth IRA. Therefore, you will need to do the Backdoor Roth IRA in order to still get money into this account.
Since the academic calendar ends in June, there is a chance your attending income in the back half of the year will tip you over the limit.
Rather than blindly making a Roth IRA contribution in the year you graduate, calculate if your combined residency/attending income in that transition year will exceed the IRS threshold. The IRS makes changes to this every year. For 2022, Single filers $129,000 – $144,000, Married filing jointly $204,000 – $214,000. If you file married filing separately the phase out range is between $0 – $10,000.
Also, you can’t have any pre-tax IRA account if you are doing the Backdoor Roth IRA. So, it could be worth rolling those into your 401(k)/403(b) account or converting those into a Roth IRA.
Possibly Convert Old Retirement Plans into a Roth IRA
As a resident or fellow, your last year presents a decent opportunity to convert old retirement plans into a Roth IRA. The reason for this is you’re in a relatively low-income tax bracket compared to where you will likely be during your attending years.
Converting old pre-tax retirement accounts requires you to claim the amount converted as income (and pay taxes on it, due the following April when taxes are due).
Depending on your circumstances, this could be a great opportunity to pay a little bit in tax now on some money that you will later be able to access tax-free in retirement.
If you’re starting your last year of residency/fellowship in 2021 and will complete it in 2022, converting these accounts before December 31st, 2021, would be ideal, as you’ll still be on your resident income for that tax year. However, converting in 2022 when you only work half the year (or less) at an attending income level could still be advantageous.
Obviously, you need to have the ability to pay the income taxes due on the conversion. Assuming that is the case, this is worth considering.
There are a few other options available to you on what to do with your old retirement plans. Please see the recent blog post for a little more detail on the options available to you.
Map Out a Retirement Savings Plan
Now that you are about to begin your career as a doctor, it’s time to start thinking about the end of that career!
Do you want to achieve rapid wealth accumulation so you can fatFIRE your way to financial independence and possibly get out of medicine early? Or are you content going the smooth and steady route and retire in your 60’s?
Either way, you’ll need to start saving for retirement sooner rather than later. However, if you can start saving at least 20% of your gross income for retirement, that should put you on a decent track to be able to retire at a reasonable age.
If you want to retire sooner, save more. Simple as that.
Before mentally spending all of your future attending paycheck, carve out at least 20% of it to earmark for retirement.
Establish a Relationship with a Financial Advisor
If all of this seems overwhelming to do on your own, or you simply need someone to hold you accountable, a financial advisor specializing in financial planning for physicians can be of great service.
If you’re not already meeting with us at Finity Group, I encourage doctors to consider an independent financial advisor (or independent financial advising firm).
By being independent, their company doesn’t manufacture any products, nor are they affiliated with companies that do. This helps minimize conflicts of interest.
If you work with someone whose company has their own products, odds are, your advisor is recommending their own company’s stuff. Not that their products are necessarily bad, but you potentially could be getting more objective advice elsewhere.
Before working with any professional, it will be important to ask about the fees or cost of services. Finity Group is very transparent on the fee side of things, please visit our page on Fee Transparency.
You have a great opportunity to get the rest of your career and financial life on track during your final year of residency or fellowship. Take advantage of it!
If you can establish good habits early and get things in order, your future self will thank you.
If you have any questions or concerns about your financial situation, please don’t hesitate to reach out. We would be happy to meet with you to address and questions you may have and talk about ways to better position yourself moving forward.
Reach out to us for a complimentary review of your retirement plan!
Any investment involves risk of loss, including total loss of principal. Consult with a financial professional for guidance on which retirement plan in right for you. This is not to be construed as tax-advice. Consult with a tax-professional for tax-advice and implications for your particular circumstances.